The Shanghai Stock Exchange (SSE) which in terms of market capitalization for trading in securities can boast being one of the biggest in the world, is considering integrating the technology of a distributed ledger (DLT) into its operations.
SSE has unveiled a report that outlines how the DLT can be utilized at various stages in the process of transferring of securities, including registering, insurance of the securities, trading operations settlements that are performed following the trade
The SSE report summarizes the key benefits of using DLT in China's financial environment, including efficiency improvement of settlement operations by replacing the current T + 1 model, with that which is currently used by exchanges and providing transactions only a day after the order has been executed.
WHY IS IT IMPORTANT?
- SSE is the 4th largest stock market in the world with the market capitalization $5,12 trillion (as of December 2017). It is controlled and governed directly by China’s Securities Regulatory Commission and is a non-for profit organization.
- However, according to the report, the potential use of a DLT by a Chinese stock exchange may come across some regulatory difficulties - such as engaging in conflict with existing centralized registration system.
Referring to the experience of using DLT by competitors in other countries, For example, in Australia and Hong Kong, SSE notes that DLT can benefit China in at least two areas like “over-the-counter securities issuance and trading, as well as order book post-trading settlement”
At present, SSE utilizes third-party platforms to perform custodial services and facilitate post-trade transactions, and DLT can completely eliminate this system. But in order to do this, market needs a legislative base, established by a regulator and central government departments
In his conclusion, the author of the report is offering countries regulators to start treating the DLT as an important area of research in order to further develop a strong legislative framework capable of embracing innovation in the field.
By Nadya Astam